Earnings for second quarter edge up; but profit margin closes

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Earnings edged up in the second quarter despite narrowing profit margins at Partners HealthCare System, aided partly by a state government decision to drop an assessment on Partners’ newly acquired health insurance division, Neighborhood Health Plan.

Net income totaled $133.2 million in the three months ended March 31 for Boston-based Partners, which runs Massachusetts General and Brigham and Women’s hospitals, an increase of 0.7 percent from the $132.2 million earned in the same period last year.

Operating income jumped nearly eightfold to $40.8 million in the most recent quarter, from $5.3 million last year, when the hospital and doctors organization took a $110 million accounting charge to write off the value of computer and software systems it was replacing.

At the same time, second-quarter income from investments slipped to $92.3 million from $126.8 million a year earlier as falling interest rates cut into the value of financial instruments known as “swaps” that Partners has been using as hedges in its investment portfolio.

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Partners’ operating margin — the excess of revenues over expenses — narrowed to 1.6 percent in the quarter from about 4 percent last year. That was largely due to reimbursement cuts for Medicare and Medicaid, the government insurance programs for seniors and low-income patients that represent 45 percent of Partners patient revenues.

“We live on razor-thin margins,” said Peter K. Markell, chief financial officer and treasurer at Partners. “When you get squeezed in the rate of payment, that drops right to the bottom line.”

But the quarterly results received a boost from Neighborhood Health’s $15 million in operating income.

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